The coronavirus outbreak is clearly taking a toll on the broader markets but water supply companies have a pretty decent outlook, given the nature of services they offer. Potable water and wastewater services play a crucial role in daily life and therefore are in high demand, especially under the current circumstances.
Let’s take a closer look at the water supply industry and make a note why it may surge ahead.
Coronavirus Raises Water Usage Frequency
First, cleanliness and personal hygiene have become paramount to avade the flu-like illness; hence the usage of water for such purposes has increased lately. After all, washing hands at regular intervals is the primary way to not be infected and thus stop the virus from spreading.
Second, since most Americans drink water from their taps, the issue of cleanliness and the potential discovery of the novel coronavirus in the country’s water supply systems have now come under the lens. Per a United States Environmental Protection Agency report (EPA) released last week, the virus has not been detected in drinking-water supplies. The agency thus deems water supplies at low risk of contamination.
Finally, since water supply companies primarily offer utilities services, these will continue to offer their services as usual. Therefore, to remain vigilant of any contamination, one may expect these companies to take additional measures in the nearterm, which could include repairing and replacement of aging pipelines. These necessary moves could push these companies to opt for borrowing in the near-term.
Monetary Stimulus to Up Water Supply Companies Ahead
Maintenance of water supply infrastructure isn’t an easy task and thus requires a substantial capital. The Federal Reserve’s economic stimulus measures could be a boon for water supply companies right now, given the near-zero borrowing rates. Earlier this month, the central bank slashed the benchmark rates from 1%-1.25% to the current range of 0%-0.25% in a bid to cushion the economy.
This rock-bottom interest rate range should encourage water supply companies to take loans and invest in their infrastructure so as to meet the ongoing demand for water. Additionally, the ability to borrow capital at such modest rates may also make these utilities companies confident of coping with their finances and not reducing manpower.
This, in turn, will keep the businesses rolling and help the industry players fare well until the temporary downturn induced by the pandemic passes.In fact, one may note that the Zacks Utility - Water Supply industry ranks among the top 30% of 254 Zacks industries as of Mar 24.
3 Stocks to Buy
We have, therefore, rounded up three stocks from the Zacks Utility - Water Supply industry, all carrying a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
American States Water Company AWR is a provider of water and electric services to residential, industrial and other customers. The Zacks Consensus Estimate for American States Water Company’s current-year earnings has moved 3.2% north in the past 60 days. The company’s expected earnings growth rate for the current year is 4.7%.
Primo Water Corporation PRMW is a provider of home and office bottled water delivery and water filtration services. The Zacks Consensus Estimate for Primo Water’s current-year earnings has moved 4.7% north in the past 60 days. The company’s expected earnings growth rate for the next quarter is more than 100%.
Middlesex Water Company MSEX is the owner and operator of regulated water utility and wastewater systems. The Zacks Consensus Estimate for Middlesex Water Company’s current-year earnings has moved 1.5% north in the past 60 days. The company’s expected earnings growth rate for the current year is 1.5%.
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